UK Inheritance Tax Rules (2026/27)

UK inheritance tax (IHT) is charged at 40% on the value of an estate above the nil-rate bands when a person dies, and on certain lifetime transfers made within seven years of death. The 2026/27 regime sits on top of two frozen allowances (the £325,000 standard nil-rate band and the £175,000 residence nil-rate band), a tapered withdrawal of the RNRB above £2,000,000, a seven-year gift rule with five bands of taper relief, and a stack of exemptions for spouses, charities, regular gifts out of income, and qualifying business and agricultural property. The Autumn Budget 2024 announced two structural reforms that bite from April 2026 (a £1,000,000 cap on the 100% rate of Business Property Relief and Agricultural Property Relief combined) and April 2027 (unused pension scheme death benefits brought inside the IHT estate), together with the abolition of the remittance basis of domicile and a new ten-year residence test for IHT scope. This guide walks through every moving part of the 2026/27 rules with four worked examples and institutional sources at the end.

1. Overview of UK inheritance tax

Inheritance tax is the tax charged on the value of a person's estate on death, and on certain transfers of value made during their lifetime. The legislative framework sits in the Inheritance Tax Act 1984, as heavily amended since: the residence nil-rate band was added in 2017, the reduced 36% charity rate in 2012, the pre-owned assets income tax charge in 2005, the gifts with reservation rules in 1986, and the new long-term resident test from 6 April 2025. The Autumn Budget 2024 announced the biggest set of structural changes in over a generation, including a £1,000,000 cap on the 100% rates of Business Property Relief and Agricultural Property Relief from April 2026, the extension of the IHT estate to include unused pension death benefits from April 2027, and the replacement of the remittance basis with a residence regime.

For most UK families the headline mechanics are simple. The estate (assets minus liabilities, funeral costs and exemptions) is valued at the date of death. The available nil-rate band (NRB) of £325,000, plus the residence nil-rate band (RNRB) of £175,000 where a main residence passes to direct descendants, plus any nil-rate bands transferred from a predeceased spouse, is deducted. What remains is taxed at 40% (reduced to 36% where at least 10% of the net estate goes to charity). For a single person with a typical home this can give a tax-free threshold of up to £500,000; for a married couple or civil partners pooling both sets of bands, up to £1,000,000.

Where the rules get genuinely complicated is in the seven-year history of lifetime gifts, the tapered withdrawal of the RNRB for estates over £2,000,000, the interaction between Business Property Relief and the new £1,000,000 cap, the design of the 10-year residence test for worldwide IHT scope from 6 April 2025, and the treatment of pension death benefits from April 2027. Each of those is covered in its own section below. The numbers throughout this guide are the 2026/27 rates and thresholds; where a rule changes mid-period or in a later year that fact is flagged explicitly. This is general information based on published HMRC and gov.uk guidance, not legal or tax advice for any individual estate.

2. The nil-rate bands and taper threshold

Standard nil-rate band (NRB). The headline allowance is £325,000 per individual and has been at that level since 6 April 2009. The 2024 Autumn Budget extended the existing freeze through to April 2030, meaning the NRB will have been frozen for 21 years by the time it next moves. Fiscal drag (the silent tax rise from inflation against a nominal threshold) means that an asset worth £325,000 in 2009 is now worth far more in real terms, but the IHT allowance has not followed. The Office for Budget Responsibility forecasts that the share of estates paying IHT will roughly double over the freeze.

Residence nil-rate band (RNRB). Introduced 6 April 2017, the RNRB is an additional £175,000 per individual that applies only where a qualifying residence is left to one or more direct descendants. Direct descendants include children (including step, adopted and foster children), grandchildren, and spouses or civil partners of those descendants. A qualifying residence is one the deceased lived in at some point - holiday homes and buy-to-lets do not qualify unless lived in. The RNRB is capped at the value of the residence (so a £150,000 flat would give only £150,000 of RNRB even if the rule allowed £175,000).

Combined caps. A single individual with a qualifying home and direct descendants can shelter up to £500,000 (NRB + RNRB). A married couple or civil partners can pool both NRBs and both RNRBs on the second death, up to £1,000,000. The transfer of the unused NRB and RNRB is claimed by the personal representatives on form IHT402 within two years of the second death, and works even if the first spouse died before the RNRB existed.

Taper threshold. The RNRB is tapered away by £1 for every £2 by which the net estate exceeds £2,000,000. The taper applies on the net estate value before applying reliefs but after deducting debts and funeral costs. Mathematically the RNRB is fully extinguished at a net estate of £2,350,000 (single) or £2,700,000 (couple's pooled RNRBs), but in practice the standard NRB still applies on top. The taper threshold is also frozen until April 2030.

Downsizing addition. An RNRB-equivalent relief is preserved where the deceased downsized from their qualifying residence or ceased to own one on or after 8 July 2015, provided assets of at least equivalent value pass to direct descendants. The downsizing rules mean that someone who sold the family home to move into a care home or smaller flat is not denied the RNRB altogether, but the calculation is technical and is flagged separately on the IHT400 (form IHT435 and IHT436). Personal representatives should treat the downsizing calculation as the single most error-prone area on the entire IHT400.

3. The 40% standard rate and 36% reduced rate

Standard rate. IHT on death is charged at 40% on the value of the chargeable estate above the available nil-rate bands. For lifetime chargeable transfers (CLTs into trusts, mainly), the lifetime rate is half of that, at 20%, with the balance reassessed at the full 40% if death occurs within seven years.

Reduced 36% charity rate. Where at least 10% of the net estate (the value above the nil-rate band, before deducting the charity gift itself) is left to a UK, EU or EEA registered charity, the rate on the remaining taxable estate drops from 40% to 36%. The 10% test is applied to the "baseline amount" which is the net estate available to be charged, calculated by reference to schedule 1A IHTA 1984. The arithmetic of the reduced rate often means that increasing a planned charitable bequest from, say, 4% to 10% of the net estate increases the amount received by non-charity beneficiaries, because the IHT saving on the rate reduction exceeds the additional charity outlay. The detailed worked example for this is in section 11 below.

Rate on relevant property trusts. Trusts holding relevant property (most discretionary trusts, and interest-in-possession trusts created after 22 March 2006) are subject to their own IHT regime: principal charges of up to 6% on every 10-year anniversary, and proportionate exit charges when capital leaves the trust. Trusts are outside the scope of this personal estate guide; specialist advice is essential where a trust is in scope.

4. The 7-year gift rule and taper relief

Lifetime gifts to individuals are the single most powerful IHT planning lever available to most UK taxpayers. The seven-year rule is the mechanism that makes them effective.

The mechanic. A gift to an individual (or to certain trusts for the disabled, or to absolute trusts before March 2006) is a Potentially Exempt Transfer (PET). No IHT is due at the time of the gift. If the donor survives 7 full years from the date of the gift, the gift falls out of the estate entirely and no IHT is ever due. If the donor dies within 7 years, the gift becomes chargeable on death and its value (at the date of the gift, not at death) is added back to the estate before computing IHT. The PET uses up the donor's NRB in chronological order; the oldest PETs use the band first.

Taper relief. Where IHT becomes payable on a PET because the donor died within 7 years, the rate of IHT charged on that specific gift is reduced on a sliding scale:

0-3 years between gift and death: 0% taper, full 40% rate applies
3-4 years: 20% taper, effective rate 32%
4-5 years: 40% taper, effective rate 24%
5-6 years: 60% taper, effective rate 16%
6-7 years: 80% taper, effective rate 8%
7+ years: gift exempt, no IHT

Common misunderstanding. Taper relief applies to the IHT due on the gift, not to the value of the gift itself. The gift value at the date of the gift still uses up the donor's NRB at full value. In practice, this means taper only delivers a saving where the cumulative seven-year gifts exceed the NRB - because gifts within the NRB do not generate IHT in the first place, there is nothing to taper. A donor making a single £400,000 gift four years before death sees only the £75,000 over the NRB attract tapered IHT, at the 24% effective rate.

Order of gifts matters. Earlier gifts use the NRB first. If a donor makes three £200,000 gifts in years 1, 2 and 3 before death (£600,000 cumulative over the seven-year window), the first £325,000 wipes out the NRB across two of the gifts; the remaining £275,000 is taxed with taper relief based on each individual gift's distance from death. The arithmetic becomes intricate when multiple gifts straddle the taper-relief bands.

14-year shadow. A CLT made up to seven years before a PET can cast a fourteen-year shadow - the CLT counts in the donor's seven-year cumulative total for the PET, even though it predates the PET by up to seven years. This is the only practical reason most donors need to keep records of gifts going back fourteen years, not seven.

5. PETs versus CLTs

The IHT regime divides lifetime transfers into two categories. The treatment depends on the identity of the recipient, not the value or intent of the gift.

Potentially Exempt Transfers (PETs). A PET is a gift from an individual to another individual, or to a bare trust or trust for a disabled person. PETs are not taxed at the time of the gift, generate no reporting requirement, and become fully exempt if the donor survives 7 years. If the donor dies within 7 years the PET becomes a chargeable transfer retrospectively. The donee (recipient) is primarily liable for the IHT, with the personal representatives as secondary liability; in practice executors usually pay from the estate and adjust the residuary beneficiaries' shares.

Chargeable Lifetime Transfers (CLTs). A CLT is a gift into a relevant property trust - most modern discretionary trusts and interest-in-possession trusts created after 22 March 2006. The CLT is immediately chargeable to IHT at the lifetime rate of 20% on the value above the donor's available NRB, with the trustees usually paying the tax (if the donor pays, the gift is grossed up). If the donor dies within 7 years, the CLT is reassessed at the full 40% with credit for the lifetime 20% already paid and the same taper-relief sliding scale. CLTs also use up the donor's NRB at the time of the gift, so subsequent CLTs or death calculations have less band available.

Cumulation. CLTs cumulate with each other (and with PETs that have become chargeable) over a rolling seven-year window from the date of any given transfer. The NRB available to a CLT is reduced by the total of chargeable transfers in the previous seven years. This produces a "ratchet" effect: large lifetime CLTs eat into the NRB and accelerate the lifetime tax bill on subsequent CLTs.

Why the distinction matters. A wealthy donor wanting to remove £1 million from their estate can gift directly to children (PET, no immediate tax, full exemption after seven years) or settle into a discretionary trust (CLT, immediate 20% on the £675,000 over the NRB, with the full 40% reassessed if death within seven years). The trust route gives more flexibility over distribution and control, but at the cost of immediate tax and the ten-yearly principal-charge regime. The PET route is cheaper if the donor survives, more expensive in legal opacity if circumstances change.

Exempt transfers. Some lifetime transfers are exempt in their own right and never enter the seven-year cumulation. The main exempt transfers are gifts to a UK-domiciled spouse or civil partner, to a UK-registered charity, to a political party that won at least two MPs (or one MP plus 150,000 votes) at the last general election, to a national institution (the National Gallery, the British Museum etc.), and gifts to housing associations. Exempt transfers do not count toward the £3,000 annual exemption, the small gifts limit, or the seven-year window.

6. Annual gift exemptions

In addition to the seven-year PET mechanic there are several smaller exemptions that allow lifetime gifting without ever entering the seven-year window. Stacked properly they let most families make meaningful annual gifts without ever touching the cumulation rules.

Annual exemption. Each donor has an annual exemption of £3,000 per tax year. The exemption can be carried forward one year only, so an unused exemption from the previous year can be added (£6,000 in a single year) but no further. The exemption is applied to the earliest gift in the year first; if a donor makes a £5,000 gift in May, £3,000 of that gift is exempt and the £2,000 balance becomes a PET. A married couple has £6,000 of combined annual exemption per year.

Small gifts exemption. Gifts of up to £250 per recipient per year are exempt, with no overall cap on the number of recipients. The £250 limit is total per recipient, not per gift - if a donor gives £200 in spring and £100 in autumn to the same person, only the first £250 is exempt and the £50 excess loses the exemption entirely (the small gifts exemption is all-or-nothing per recipient). The exemption cannot be combined with the annual exemption for the same recipient: if the annual exemption is being applied to a recipient, no separate small gift exemption is available to them.

Wedding and civil partnership gifts. Gifts in consideration of a marriage or civil partnership are exempt up to:

£5,000 from a parent of either party to the marriage
£2,500 from a grandparent or remoter ancestor, or from one party to the marriage to the other
£1,000 from anyone else

The gift must be made before the wedding (or at least be conditional on it). A gift to a couple after the wedding is not a wedding gift for IHT purposes. The limits are per person, so a couple's two sets of parents can give up to £20,000 in total. Wedding gifts that exceed the limit are not exempt entirely - the excess over the threshold is a PET and enters the seven-year window.

Normal expenditure out of income. Possibly the most powerful exemption in the toolkit, and the most underused. A gift is exempt without limit if it forms part of the donor's normal expenditure, is made out of income (not capital), and leaves the donor with sufficient income to maintain their usual standard of living. The three tests are cumulative. "Normal" means a regular pattern - quarterly or annual gifts of the same kind, or a written intention to make a series. A one-off gift cannot be normal expenditure. "Out of income" means income after tax, including pension income; capital gains and capital drawdowns do not count. The donor's lifestyle test requires keeping records (the standard is "what would a financial-planner cash-flow model show"). Where the criteria are met there is no upper limit and the gift never enters the seven-year window. Many high-income retirees can give tens of thousands of pounds per year under this exemption alone.

Maintenance payments. Reasonable gifts for the maintenance of a former spouse, of a child under 18 (or in full-time education), and of a dependent relative, are exempt without limit and without entering the seven-year window. The exemption is narrower than it sounds - "maintenance" is interpreted strictly and does not extend to discretionary lifestyle gifts.

7. Spouse and charity exemptions

Spouse and civil partner exemption. Transfers between spouses or civil partners are 100% exempt from IHT, both during lifetime and on death, with no upper limit. The exemption applies whether the transfer is direct (an outright gift or bequest) or indirect (a transfer into trust where the spouse has an immediate post-death interest). Civil partners registered under the Civil Partnership Act 2004 enjoy identical exemption. Unmarried cohabiting couples receive no spouse exemption no matter how long they have lived together; this is one of the single biggest practical drivers of unexpected IHT liability in modern UK estates.

Non-UK-domiciled spouse. Before 6 April 2025 the spouse exemption was limited to £325,000 where the recipient spouse was not UK-domiciled, unless the non-dom spouse made an election under section 267ZA IHTA 1984 to be treated as UK-domiciled for IHT. From 6 April 2025 the old domicile-based rule is replaced by the residence regime: the £325,000 cap applies where the recipient spouse is not a long-term UK resident, with the same election mechanism preserved. Specialist advice is essential where one spouse is not a long-term UK resident.

Charity exemption. Gifts to a UK, EU or EEA registered charity (under the broad definition of charity in Schedule 6 Finance Act 2010) are 100% exempt from IHT, both in lifetime and on death. The exemption requires the donee to be a "charity" as defined for tax purposes - not every philanthropic organisation qualifies, and overseas charities outside the EU/EEA generally do not unless they have UK charity status. Gifts to UK community amateur sports clubs (CASCs), housing associations, certain national institutions (the National Gallery, the British Museum etc.) and qualifying political parties also fall within a similar exempt-transfer regime.

The 36% reduced rate test. Where at least 10% of the "baseline amount" (the net estate above the nil-rate band, before deducting the charity gift itself but after all other reliefs and exemptions) is gifted to a qualifying charity, the rate on the remaining taxable estate drops from 40% to 36%. The arithmetic sometimes flips the right answer for the family. On a taxable estate of £700,000 a 10% charity gift of £70,000 reduces the IHT bill from £280,000 (40% × £700k) to £226,800 (36% × £630k). Without the gift the family receives £420,000; with the gift the family receives £403,200. The £70,000 charity gift costs the family only £16,800 net of the IHT saving. This is why the 36% rate is sometimes called the "free" charity test - a small uplift to a planned charity gift often costs the family nothing.

8. BPR, APR and the £1m cap from April 2026

Business Property Relief (BPR) and Agricultural Property Relief (APR) together form the largest of the IHT reliefs and are the structural change announced at the Autumn Budget 2024 with effect from April 2026.

BPR before April 2026. BPR (also called Business Relief) gives 100% relief from IHT on qualifying business assets owned for at least 2 years before the chargeable event. Relief is given at 100% on shares in unlisted trading companies (including AIM-quoted shares from the Alternative Investment Market), interests in a trading partnership, and a sole-trader business. A lower 50% rate applies to controlling shareholdings in fully listed companies, to land and buildings used in a business the deceased controlled, and to certain plant and machinery. The business must be a trading business (not mainly investment) - the wholly-or-mainly test in section 105 IHTA 1984 catches mixed businesses where investment activity is more than 50% of the whole. Excluded activities include dealing in securities, dealing in land or buildings, and making or holding investments.

APR before April 2026. APR gives 100% relief on owner-occupied agricultural land and farm buildings actively farmed for 2 years before the chargeable event, or held and let to a working farmer for 7 years. A 50% rate applies to land let under tenancies granted before 1 September 1995. The relief attaches to the agricultural value, not the development value of the land - a field with planning permission for housing will attract APR only on the value as farmland. Eligible buildings include farmhouses (provided they are of a "character appropriate" to the surrounding farmland and actually used as a farmhouse), cottages occupied by farm workers, and farm buildings such as barns and sheds.

The £1,000,000 cap from April 2026. From 6 April 2026, BPR and APR will share a combined £1,000,000 allowance per individual at the 100% relief rate. Value above the cap will attract only 50% relief, doubling the effective IHT rate on assets above £1,000,000 from 0% to 20%. The cap is per individual and is not transferable between spouses - if the first spouse to die used no BPR or APR, the survivor still gets only one £1,000,000 cap on their own death. The cap interacts with the 7-year rule: lifetime transfers of BPR/APR-qualifying property that fail to survive seven years will reduce the available cap on death. Affected estates are primarily working family farms (where the headline farmland value often exceeds the cap by an order of magnitude), AIM-quoted share portfolios held for IHT planning, and family-owned trading businesses on second-generation succession. The cap is one of the most contested provisions in recent IHT history and has been the focus of substantial lobbying by farming and small-business representative bodies.

Combined or single allowance design. The £1,000,000 is allocated first to APR property and then to BPR property, where both are claimed. An individual with £2m of farmland and £500k of AIM shares uses the £1,000,000 cap against the farmland first (100% on the first £1m, 50% on the next £1m), and the £500k AIM holding then sits entirely in the 50% relief bucket. Estate planning that previously relied on holding AIM shares for IHT shelter needs to re-model for the new design from April 2026.

ELM scheme inclusion. From April 2025 APR was extended to cover land that ceased to be in agricultural use because it entered an Environmental Land Management (ELM) scheme. The change avoids the perverse outcome where farmers entering ELM schemes would lose APR cover during the scheme period. The extension applies before the £1,000,000 cap, so ELM land enjoys the same combined cap treatment as conventional agricultural property from April 2026.

9. Pensions inside IHT from April 2027

Until April 2027 most unused pension scheme death benefits sit outside the IHT estate. A defined contribution pot, a SIPP, or certain death-in-service benefits paid via a discretionary trust mechanism typically pass to the chosen beneficiary free of IHT, with income tax applied to the recipient only if the saver died aged 75 or over. The IHT exclusion has been the single most powerful estate-planning feature of modern UK pensions for the past decade.

The Autumn 2024 reform. From April 2027 unused pension scheme death benefits will fall inside the IHT estate. Pension administrators will become responsible for reporting scheme death benefits to HMRC and accounting for IHT on the relevant portion before paying out. The exact technical design (including the apportionment of IHT between pension and non-pension assets, the interaction with the transferable NRB, and the position of dependants' pensions) was published in draft regulations during 2025 and is in finalised form in the Finance Act 2026.

What stays outside. Charity death benefits will remain exempt from IHT (the standard charity exemption continues to apply). Dependants' pensions and annuities (where the pension is paid as income to a surviving spouse or dependent child rather than as a lump sum) will remain outside IHT. Pension death benefits paid before April 2027 continue under the old rules - the change is prospective.

Planning implications. Many retired savers were holding pension wealth deliberately as a "last-resort" IHT-efficient asset, drawing income from ISAs and taxable accounts first. The reform reverses that ordering: once pensions are inside IHT, the optimal sequence for many estates flips to drawing pension first (incurring income tax) and preserving the ISA wrapper as the IHT-exempt vehicle - though ISAs themselves are inside the IHT estate, so the comparison is really about reducing the marginal IHT-charged pension pot. The reform is significant enough that anyone with a pension pot above £325,000 should re-model their retirement income strategy ahead of April 2027.

10. Non-dom abolition and the 10-year residence test

The Autumn Budget 2024 also abolished the remittance basis of taxation from 6 April 2025 and replaced the common-law concept of domicile with a residence-based regime across the entire UK tax code, including IHT.

The long-term resident test. From 6 April 2025, an individual is a "long-term resident" for IHT purposes once they have been UK-resident in at least 10 of the previous 20 tax years. Long-term residents are subject to UK IHT on their worldwide assets; non-long-term residents are taxed only on their UK-situs assets (the same broad scope as the old non-dom regime). The 10-year test replaces the previous 15-year deemed-domicile rule and the various permutations of common-law domicile that turned on intent and origin.

Tail period on departure. A long-term resident who leaves the UK retains IHT exposure on worldwide assets for a tail period of 3 to 10 years depending on the length of prior residence. The tail is shortest (3 years) for someone who was a long-term resident for 10-13 years, and longest (10 years) for someone who was a long-term resident for 20 years or more. The graduated tail prevents the previous "switch off worldwide IHT by spending a year abroad" planning that some longer-term residents used under the old regime.

What domicile still does. Common-law domicile is no longer the test for worldwide IHT scope, but it survives for some transitional reliefs (transitional capital gains rebasing for individuals who were not UK-domiciled on 5 April 2025, and for certain trust-related rules). Pre-6 April 2025 structures and protected trust arrangements remain subject to detailed transitional rules in the Finance Act 2025. Specialist international tax advice is essential for anyone who was non-UK-domiciled before 6 April 2025.

Effect on internationally mobile families. The reform brings the UK closer to the international norm (most G7 countries use residence rather than domicile to determine estate-tax scope) but increases the cost of UK residence for globally mobile high-net- worth individuals. The behavioural response - whether formerly non-dom residents leave the UK in numbers, whether new entrants are deterred, and what the net revenue effect is - is the largest unknown in the reform's projected exchequer yield.

11. Four worked examples

Example A: small estate, single, £450,000

A single individual dies in 2026/27 leaving a £450,000 estate that includes a flat worth £180,000 passing to their adult daughter. The NRB of £325,000 covers most of the estate; the residence value of £180,000 falls within the £175,000 RNRB. After both bands, the taxable estate is £0 (because the home value caps the RNRB at £180,000 and the remaining assets are absorbed by the NRB). IHT due: £0.

Example B: medium estate, single, £750,000

A widowed homeowner with no transferable bands from a predeceased spouse dies leaving a £750,000 estate including a £400,000 home to two children. The full NRB (£325,000) and full RNRB (£175,000) apply because the home value exceeds the RNRB ceiling and the estate is below the taper threshold. Taxable estate: £250,000. IHT at 40%: £100,000.

Example C: taper kicks in, single, £2,400,000

A single individual dies leaving a £2,400,000 estate. Because the estate exceeds the £2,000,000 taper threshold by £400,000, the RNRB is reduced by half that amount (£200,000). Because the reduction (£200,000) exceeds the full RNRB of £175,000, the RNRB is fully tapered away to £0. Only the £325,000 standard NRB applies. Taxable estate: £2,075,000. IHT at 40%: £830,000. The effective tax rate on the £2,400,000 estate is 34.6%.

Example D: charity 36% reduced rate, single, £1,200,000

A single individual dies with a £1,200,000 estate including a home of £300,000 to their child. Both nil-rate bands apply in full (the estate is below the £2,000,000 taper). Baseline net estate after the nil-rate bands: £700,000. If 10% of that baseline (£70,000) is left to a qualifying charity, the rate on the remaining £630,000 drops from 40% to 36%. IHT due: £226,800. Without the charity gift the IHT would have been £280,000, so the family is effectively £-16,800 better off after funding the charity gift (the IHT saving exceeds the gift cost). The charity receives £70,000, the family receives £903,200 net of all IHT.

12. Anti-avoidance, GROBs and POAT

Gifts with reservation of benefit (GROBs). A GROB is a gift where the donor continues to enjoy some benefit from the asset given away. The classic case is giving the family home to children but continuing to live in it rent-free. Under section 102 Finance Act 1986 the asset is treated as still part of the donor's estate for IHT purposes for as long as the reservation continues, regardless of how many years have passed since the gift. Paying full market rent removes the reservation. The GROB rules also catch part-interests (such as gifting half a property and continuing to live in the whole) and benefits taken indirectly through arrangements. GROB is the single most common reason a "seven-year rule" gift fails to reduce IHT in practice.

Pre-Owned Assets Tax (POAT). POAT is a parallel income tax charge introduced in 2005 that catches some structures designed to escape the GROB rules - for example, schemes that gift the proceeds of sale of an asset that the donor continues to use. The donor is treated as receiving an annual benefit-in-kind equal to a rental-equivalent of the asset, charged to income tax. POAT can be disapplied by electing into the GROB regime, accepting the IHT consequences instead of the annual income tax charge.

General Anti-Abuse Rule (GAAR). The GAAR applies to all UK direct taxes including IHT, and catches arrangements that cannot reasonably be regarded as a reasonable course of action. The GAAR has been used by HMRC against several IHT-driven structures including some lifetime planning around the spouse exemption. The GAAR test is a high bar, but it sits behind every aggressive planning strategy and is one reason commercial estate-planning products tend to be conservatively designed.

13. IHT400, deadlines and interest

The IHT400 deadline. Personal representatives must deliver form IHT400 (or the reduced excepted-estate report through probate) to HMRC within 12 months of the end of the month of death. The tax itself is due 6 months after the end of the month of death; HMRC interest accrues on any unpaid IHT from that date. The interest rate is set by reference to the Bank of England base rate (currently 7.75% for late paid IHT, refreshed quarterly).

Cash-flow problem. Probate cannot usually be issued until the initial IHT payment has been made, but the assets that would fund that payment are locked up pending probate. Most estates solve the chicken-and-egg by using the Direct Payment Scheme (banks pay IHT directly to HMRC from the deceased's accounts before probate), by drawing on life-insurance policies written into trust, by an executor loan, or by a specialist IHT bridging loan. Land, buildings and shares in unquoted controlling holdings can have the IHT paid in 10 annual instalments under sections 227 and 228 IHTA 1984.

Reporting reliefs. Where Business Property Relief, Agricultural Property Relief or any relief other than the spouse and charity exemptions is claimed, the full IHT400 must be completed - the excepted-estate procedure is not available. The relief-bearing schedules (IHT413 for BPR, IHT414 for APR, IHT418 for trusts) are notoriously error-prone and together with the downsizing addition (IHT435/IHT436) account for the bulk of HMRC IHT compliance queries.

14. Frequently asked questions

What is the UK inheritance tax nil-rate band for 2026/27?

The standard nil-rate band (NRB) is £325,000 per individual for 2026/27, the same level it has held since April 2009. The NRB is currently frozen until April 2030 under the policy extension announced in the Autumn Budget 2024. The residence nil-rate band (RNRB) adds a further £175,000 where a qualifying residence passes to direct descendants, giving a combined £500,000 single allowance, or £1,000,000 for a married couple or civil partners pooling both sets of allowances.

What is the inheritance tax rate in the UK?

The standard inheritance tax rate is 40% on the value of an estate above the available nil-rate bands. A reduced rate of 36% applies where at least 10% of the net estate (the value above the nil-rate band) is left to a UK-registered charity. Lifetime chargeable transfers (chargeable lifetime transfers, or CLTs) taxed at the time of the gift are charged at 20% (half the death rate); if the donor dies within seven years, the full 40% is reassessed with credit for the lifetime 20% already paid.

How does the 7-year gift rule work?

Gifts to individuals are potentially exempt transfers (PETs): if the donor survives 7 full years from the date of the gift, the value is outside the estate entirely. If the donor dies within 7 years, the gift becomes chargeable and the value at the date of the gift is added back to the estate. Tapered relief reduces the IHT due (not the gift value) on a sliding scale: 0% taper at 0-3 years, 20% at 3-4 years, 40% at 4-5 years, 60% at 5-6 years, 80% at 6-7 years. Taper relief only kicks in once the cumulative gifts exceed the nil-rate band - many gifts that fall back into the estate end up taxed at the full 40% because they sit within the NRB.

What is the residence nil-rate band taper threshold?

The RNRB is tapered away by £1 for every £2 by which the net estate exceeds £2,000,000. At an estate of £2,350,000 the RNRB is fully extinguished (because £350,000 over the threshold ÷ 2 wipes out the £175,000 band). For a couple the joint taper threshold is still £2,000,000 per estate, so a surviving spouse with a £4,000,000 estate has both RNRBs fully tapered. Calculate the taper on the net estate before deducting reliefs, but after debts and funeral costs.

What is the spouse exemption?

Gifts between UK-domiciled spouses or civil partners are 100% exempt from inheritance tax, both during lifetime and on death. There is no upper limit on the exempt amount. Where the recipient spouse is not UK-domiciled the exemption is capped at £325,000 unless the non-dom spouse elects to be treated as UK-domiciled for IHT (election under section 267ZA IHTA 1984). Civil partners registered under the Civil Partnership Act 2004 enjoy the same unlimited exemption. Unmarried cohabiting partners get no spouse exemption regardless of length of relationship.

What gift exemptions are available each tax year?

Several exemptions stack each year. The annual exemption is £3,000, with one year of carry-forward where unused (so £6,000 can be gifted in a single year if the previous year was unused). Small gifts of up to £250 per recipient per year are exempt and have no overall cap, provided no individual gets more than £250 in total. Wedding or civil partnership gifts are exempt up to £5,000 from a parent, £2,500 from a grandparent or further ancestor, and £1,000 from anyone else. Regular gifts out of normal income that do not reduce the donor's standard of living (the "normal expenditure out of income" exemption) are unlimited and one of the most powerful planning tools.

What is Business Property Relief (BPR)?

BPR (also called Business Relief) gives relief from inheritance tax on qualifying business assets held for at least 2 years before the chargeable event. The headline relief is 100% on shares in unlisted trading companies (including AIM-quoted shares), interests in a trading partnership, and a sole-trader business. A 50% rate applies to land, buildings, plant and machinery used in a business the deceased controlled, and to controlling shareholdings in fully listed companies. From April 2026 (Autumn Budget 2024) BPR and APR combined will be capped at £1,000,000 for the 100% rate per individual; value above the cap will only attract 50% relief. The cap is per individual and is not transferable between spouses.

What is Agricultural Property Relief (APR)?

APR gives 100% relief on owner-occupied agricultural land and farm buildings actively farmed by the owner for 2 years before the chargeable event, or held and let to a working farmer for 7 years. A 50% relief applies where the land is let on a tenancy granted before 1 September 1995. From April 2026 APR will share the £1,000,000 combined cap with BPR for the 100% rate, and the cap also extends environmental land management (ELM) schemes from April 2025. This is the headline IHT change for working family farms and AIM-share portfolios announced at Autumn Budget 2024.

Will pensions be inside the inheritance tax estate from 2027?

Yes. The Autumn Budget 2024 announced that unused pension scheme death benefits (defined contribution pots and certain death benefits) will fall inside the IHT estate from April 2027. Until then, most unused pension pots sit outside the IHT estate (subject to income tax in the recipient's hands if the saver dies aged 75 or over). From April 2027 pension administrators will need to report scheme death benefits to HMRC and account for IHT before paying out, fundamentally changing the optimal sequencing of pension drawdown versus other estate assets. Charity death benefits and dependant's pensions remain exempt under the announced design.

How does the new non-dom regime affect inheritance tax?

From 6 April 2025 the long-standing remittance basis for non-UK-domiciled individuals was abolished and replaced with a residence-based regime. For IHT specifically, an individual now falls within the UK IHT net on their worldwide assets once they have been UK-resident in at least 10 of the previous 20 tax years (the "long-term resident" test). A formerly long-term resident leaving the UK retains worldwide IHT exposure for a tail period of 3 to 10 years depending on prior residence length. The old common-law concept of domicile no longer determines IHT scope, though it still matters for some transitional reliefs. The change is one of the most significant IHT reforms in 50 years and recasts UK estate planning for global families.

When is inheritance tax due and what is the IHT400 deadline?

The personal representatives (executors) must deliver form IHT400 to HMRC within 12 months of the end of the month of death. The tax itself, however, is due 6 months after the end of the month of death; interest accrues on any unpaid IHT from that date at the HMRC interest rate. Tax on certain types of asset (qualifying land, buildings and shares in unquoted controlling holdings) can be paid in 10 annual instalments. The grant of probate or letters of administration usually cannot be issued until at least the initial payment of IHT has been made, creating a chicken-and-egg cash-flow problem that most estates solve via a direct payment scheme from a bank account, an executor loan, or a specialist IHT loan.

What are gifts with reservation of benefit (GROBs)?

A gift with reservation of benefit (GROB) is a gift where the donor continues to enjoy some benefit from the asset given away - the classic example is giving the family home to children but continuing to live there rent-free. Under section 102 Finance Act 1986 the asset is treated as still part of the donor's estate for IHT purposes, regardless of how many years have passed since the gift. Paying full market rent removes the reservation. The Pre-Owned Assets Tax (POAT) is a parallel income tax charge that catches some structures designed to escape the GROB rules. GROB is the single most common reason a "7-year rule" gift fails to reduce IHT in practice.

How do PETs differ from CLTs?

A Potentially Exempt Transfer (PET) is a gift to an individual or certain trusts for the disabled. No IHT is due at the time of the gift. If the donor survives 7 years the gift falls out of the estate entirely; if not, the gift becomes chargeable on death with taper relief on the IHT (not the value). A Chargeable Lifetime Transfer (CLT) is a gift into most trusts (discretionary, interest-in-possession created after March 2006, etc.). It is taxed at 20% at the time of the gift to the extent it exceeds the available NRB, and reassessed at the full 40% if the donor dies within 7 years (with credit for the 20% paid). CLTs also use up the donor's NRB before death.

Can the unused nil-rate band be transferred between spouses?

Yes. Both the standard NRB and the RNRB are transferable between spouses and civil partners. When the first spouse dies, any unused proportion of their NRB and RNRB transfers to the surviving spouse and is added to the survivor's bands on the second death. A widow whose late husband used none of his NRB or RNRB therefore has up to £1,000,000 in combined allowances available against her own estate. The transferable RNRB applies even if the first spouse died before the RNRB existed (it was introduced 6 April 2017) - the unused proportion is preserved by statute. The personal representatives must claim the transfer on form IHT402 within two years of the second death.

Do I need to file an IHT return if no tax is due?

Sometimes. For deaths from 1 January 2022, estates that meet "excepted estate" conditions only need to report basic figures through the probate application (form IHT205 was abolished). An estate is excepted if it is below the available nil-rate bands, all assets pass to a UK-domiciled spouse or charity, foreign assets are under £100,000 and total gifts in the seven years before death are under £250,000 (or £150,000 for non-UK-domiciled deceased). Estates that exceed any limit must complete the full IHT400 even if no tax is due (e.g. because the spouse exemption wipes it out). The IHT400 is also required where reliefs such as BPR or APR are claimed.

Inheritance tax planning interacts with most other areas of the UK tax code. For readers building a full picture of a UK estate the most relevant cross-references on SalaryTax are:

Inheritance Tax calculator - model an estate under the 2026/27 rules including NRB, RNRB, taper threshold, and the new £1,000,000 BPR/APR cap.
Capital Gains Tax calculator - CGT and IHT often interact on the same asset (a lifetime gift can be both a PET and a CGT disposal).
EIS and SEIS deep-dive - Business Relief on EIS and SEIS shares from a 2-year hold, and how the new £1m cap reshapes IHT-targeted AIM portfolios.
Business Asset Disposal Relief guide - the parallel CGT relief for business-owner exits, often planned alongside BPR.
UK landlord tax guide - residential property is one of the largest IHT-bearing asset classes for UK families.
UK residence (SRT) guide - the Statutory Residence Test underpins the new long-term resident definition for IHT scope from 6 April 2025.
UK digital nomad tax guide - for globally mobile individuals navigating the new residence-based IHT regime.
Pension tax relief guide - planning ahead of the April 2027 change that brings unused pension pots inside IHT.
Pension comparison guide - SIPP, workplace pension and ISA in light of the April 2027 reform.
High earner tax planning checklist - the broader framework where IHT planning typically sits for UK higher-rate taxpayers.
UK tax relief guide - sister piece covering every relief mechanism in 2026/27, including a shorter IHT section.
How UK tax works - primer on the income tax, CGT and IHT machinery these rules sit inside.

Sources: gov.uk Inheritance Tax overview, gov.uk Inheritance Tax gifts page, gov.uk Residence Nil-Rate Band guidance, gov.uk Business Relief, gov.uk Agricultural Property Relief, HMRC Inheritance Tax Manual, gov.uk Autumn Budget 2024 Overview of Tax Legislation and Rates (OOTLAR), gov.uk changes to the taxation of non-UK-domiciled individuals, gov.uk Inheritance Tax on pensions consultation outcome, and gov.uk excepted estates guidance. All figures retrieved 2026-05-25 and apply to 2026/27 unless explicitly stated otherwise. This guide is general information based on published HMRC and gov.uk material, not legal or tax advice for any individual estate. Anyone making decisions about an estate worth more than the nil-rate bands should consult a Chartered Tax Adviser (CTA) or STEP-qualified estate practitioner on their own facts.